A company made credit sales of \$10,000 in Year 1. In Year 2, it wrote off \$1,000 as uncollectible. How does this affect the financial statements?

Revenue is overstated in Year 1, and expenses are understated in Year 1.

Revenue and expenses are correctly stated and matched in Year 1.

Revenue is understated and should be adjusted upward in Year 2.

Expenses are overstated and should be reduced accordingly in Year 2.